I would now like to hand the conference over to Mr. Marc Washbourne, Co-Founder and CEO. Please go ahead, sir.
Good morning, everyone. Thank you for taking the time to join Our Investor Call. I'm Marc Washbourne, CEO and Co-Founder of ReadyTech, and with me today is Nimesh Shah, ReadyTech's CFO. We are pleased to present the company's FY 2022 results, which saw ReadyTech achieve guidance and deliver another year of strong growth. These results come as our reputation across our market builds as the vendor of choice for highly configurable, interoperable, and scalable cloud-based software, coupled with our customer-centric approach. Our financial results are also an outcome of the tremendous efforts of our people. Before we begin the formal presentation, I'd like to thank our team of ReadyTechers for their outstanding commitment and contribution through another busy year of organic growth and M&A activity. With that, let me begin now with the key operational and financial highlights on slide three.
The standout metric for FY 2022 was the delivery of 16.8% like-for-like growth to AUD 78.3 million in revenue. Underlying EBITDA was AUD 27.5 million with an EBITDA margin of 35.1% or 36.5% when LTIP is excluded. Underlying NPATA was AUD 14.3 million, up from AUD 10.6 million in the prior year, and net customer revenue retention after churn and including expansion with existing customers was 106%, up from 104% in FY 2021. We have a strong growth opportunity pipeline of more than AUD 25 million as at the 30th of June. Pipeline conversion during FY 2022 was particularly pleasing with 48 new high-value customer wins, with strong success at the enterprise end of the market, producing 46% growth in revenue per new customer.
Ladies and gentlemen, please stay connected. We have lost the connection from the management. Ladies and gentlemen, the management line is connected again, so you may proceed.
Thank you for reconnecting us. I'm afraid we had a technical issue. We have reconnected via a mobile phone. I think I was up to slide four, which depicts our sustained performance over the past five years. We have consistently delivered outstanding growth in high quality recurring subscription revenue with a CAGR of 27%. Turning to slide five and some of the strategic and operational achievements of the year. We had a significant windfall on new business with the addition of 48 high-value customers, each generating over AUD 50,000 in annualized subscription and implementation value, delivering an aggregate annual value of AUD 8 million.
To the right-hand side, you can see some of the new badges acquired at enterprise level, including major hotel groups, blue chip corporates such as Wesfarmers and government customers, including Training Services NSW, the City of Melton, and TASCAT, the Tasmanian Civil and Administrative Tribunal. We expect this new business momentum to continue with a growth pipeline of more than AUD 25 million in high conviction opportunities, well distributed across tertiary education, local government, justice tech, and the stand-up economy for Workforce Solutions. Notwithstanding the strong organic results, M&A was a feature of FY 2022 for ReadyTech with four strategic acquisitions in Avaxa, Open Windows, PhoenixHRIS, and IT Vision, and I will cover the value that these businesses have brought to ReadyTech later in the presentation. Now moving on to strategic execution, starting with slide seven, where we depict our vertical SaaS playbook.
We operate our business across three key verticals, Educational Work Pathways, Workforce Solutions, and Government and Justice. Each of these verticals and any acquisitions are managed and integrated across our shared SaaS platform and best practices. These are based on fundamental principles of customer centricity, usability, configurability, and interoperability. We empower and motivate our team spanning technology and products, sales and marketing, customer service, and success with one high-performing ReadyTech culture. Turning to slide eight, our accelerated growth has been achieved through ongoing and disciplined investment across three key pillars. Firstly, absolutely critical in vertical SaaS product market fit. In developing product alignment to customer needs and a strategic focus on enterprise market fit, we created 17 new R&D roles in FY 2022, with R&D investment at 32.5% of revenue.
A comparatively strong investment in products with procurement capability added through the acquisition of Open Windows elevated market fit in local government. While the PhoenixHRIS talent acquisition module has strengthened our offering for the stand-up economy in Workforce Solutions. In terms of our second area of investment, go to market, we have purposefully grown sales and marketing to target high value customers and increased sales and marketing roles by 30%, while also expanding our network of strategic partners, and a channel strategy. The Avaxa acquisition has also significantly amplified our reputation and credibility in the TAFE sector, with our customer set now including three of the five largest TAFEs in Victoria.
The final area of investment in scaling to underpin our vision of long-term sustainable growth, 17 new customer onboarding roles were added during the year to manage new customer demands, and we also made excellent progress across a range of initiatives to support the streamlining of our operations, including customer onboarding, automation, customer self-service, and the leveraging of implementation partners. Across this discipline and determined strategy of reinvestment for future growth, overall 42 new roles were added across ReadyTech for the year. I'll now hand over to Nimesh, our CFO, for an update on the financials.
Thanks, Marc. On slide 10, we provide an overview of ReadyTech's P&L. It's worth noting that earnings are presented on an underlying basis unless otherwise stated, with adjustments from statutory to underlying shown at the bottom of the slide. In addition, references to like-for-like items compare the contribution from FY teams to acquisitions of sort of Avaxa, Open Windows and PhoenixHRIS against their respective corresponding prior periods, as well as including Open Office on a 12-month pro forma basis in FY 2021. Like-for-like captures ReadyTech's organic performance. Total revenue for FY 2022 was AUD 78.3 million, growing at 56.5% or 16.8% on a like-for-like basis. Subscription and license revenue was AUD 65.6 million, representing 84% of the total revenue and up 21.9% on a like-for-like basis.
Revenue growth was driven by new customer wins, resulting in average revenue per new customer of nearly AUD 60 thousand, driven by significant upsell to existing customers, user licenses and modular upgrades. The post contribution of the acquisitions of Avaxa, Open Windows, and PhoenixHRIS was AUD 4.3 million in terms of revenue, including AUD 3 million in subscriptions. Underlying EBITDA of AUD 27.5 million represents a margin of 35.1%, excluding LTIP of AUD 1.1 million. Underlying EBITDA of AUD 28.6 million with a margin of 36.5%. Turning to slide 11 and a summary of balance sheet and cash flow. As at 30 June 2022, available cash for use was AUD 12.8 million, including AUD 9.2 million in cash equivalents and AUD 3.5 million debt facility headroom.
Given the company's AUD 37.5 million facility was drawn to AUD 34 million. Post year-end, an additional AUD 12.5 million bank facility was obtained to fund the acquisition of IT Vision. 40% of the total AUD 50 million now gross facility going forward has been hedged with an interest rate swap. As at June, net debt was AUD 25.9 million, equating to leverage ratio of 0.9x. During the FY 2022, it's worth noting AUD 8.8 million of company cash was used for acquisitions of Avaxa, Open Windows, and PhoenixHRIS. In terms of operating cash flow, AUD 25.5 million in operating cash flow before interest and tax was generated for the year, representing an 89% conversion as a % of underlying EBITDA, supported by continued growth in customer prepaying and new subscription fees.
Now I will hand off back to Marc to take you through an update by vertical or segment, followed by strategy and outlook.
Thank you, Nimesh. I'll start with Government and Justice, given this is now our largest segment following the completion of the IT Vision acquisition, which I'll cover in more detail in a moment. Firstly, focusing on government on slide 13, where digital transformation headwinds and migration to the cloud continues to be a key driver for our business. In local government, through the combination of IT Vision and Open Office, we now reach 270 of 530 local councils in Australia, and we continue to view the market as highly addressable, given over 75% of councils purchased a core solution 10+ years ago. We covered the strategic rationale for the IT Vision acquisition on slide 14.
I appreciate there is some detail on this slide, but at a high level, this transaction has enabled us to become one of the leading government software providers by volume. IT Vision meets our hurdles on the mission-critical nature of the product and the stickiness of its customer base. We have an opportunity to concentrate R&D resources and optimize product market fit and also capture new upsell and cross-sell opportunities. We expect to enjoy a range of benefits of scale and significantly expand go-to-market activities. Of course, we are excited to welcome IT Vision's highly talented team to ReadyTech, who bring deep expertise in local government. Now on slide 15. The key benefit of this combination is a significant expansion in our footprint and market penetration across Australia.
IT Vision has an incredibly strong position in W.A. and S.A., and it's been building momentum in Queensland, whereas the traditional base of ReadyTech local government has been Victoria, New South Wales and Tasmania. Some of the key talent I referred to earlier includes Nigel Lutton, CEO of IT Vision, backed up by a very strong management team, with all key individuals highly incentivized for integration to ReadyTech and growth in both subscription revenue and EBITDA. Moving to slide 16. In the government sector, we win on citizen centricity, our cloud-based modular architecture, high configurability, and a strong track record of customer implementations. In this vertical, ReadyTech is known for its community engagement platform, and this vision remains unchanged as we optimize the local government product set alongside IT Vision.
The acquisition of Open Windows has now been fully integrated, strengthening both our holistic ERP offering and module upsell opportunities through its market-leading contracts and procurement management capability. Justice on slide 17 continues to present a major global growth opportunity. Domestically alone, our citizen-centric Justice Case Management solution services a AUD 250 million market across courts, commissions and legal services, tribunals and public prosecutors. On top of that, the product suite has high portability into offshore markets on the back of our successful Ministry of Justice project in the U.K.. Our best-of-breed solutions are helping acquire new customers via our domain expertise, our modular approach, local presence, and accelerated time to go live. Turning to slide 18.
The ReadyTech Justice product to manage scheduler and listings is now live across more than 140 Ministry of Justice sites across the U.K., providing very strong evidence of our ability to scale with a rollout to 4,500 users across the judiciary. Our next module for the MoJ, resource management, is expected to go live in the first quarter of FY 2023. The feedback on this project is that it's been a resounding success, and we are getting overwhelmingly positive feedback from users. We believe this places ReadyTech in very good stead for future expansion and overseas opportunities. The Government and Justice segment delivered revenue growth on a like-for-like basis of 18.6% to AUD 23.9 million.
This was underpinned by 33% growth in subscription revenue to AUD 19.6 million, with recurring revenue now 76% of total revenue compared to approximately 65% in FY 2021. Open Office was the main contributor to these results, and Open Office recently achieved its second and final set of earn-out hurdles in the space of less than 18 months, which now provides an excellent platform for the integration of IT Vision. The Open Windows acquisition is also performing well as expected, having contributed AUD 2.3 million of revenue since acquisition in December 2021. Reflecting the enterprise nature of deals in this segment, average revenue per new customer was AUD 186,000, up 15.4%, driven by module upgrades to existing customers and winning customers across local and state government as well as the Justice sector.
Now, moving on to Workforce Solutions on slide 21. In this vertical, ReadyTech operates in a large addressable market of AUD 2.4 billion. Our key focus remains the stand-up economy, traditionally known as blue collar, which includes logistics, hospitality, aged and disability care, manufacturing, agriculture, and retail. This targeted industry vertical strategy enables highly efficient customer acquisition via targeted sales and marketing activity. We also have been developing a channel partner strategy, which is paying dividends on both customer acquisition and the scalability of onboarding new customers. Turning to slide 22. In Workforce Solutions, ReadyTech offers an all-in-one platform that is highly differentiated in the mid-enterprise market. To further strengthen product market fit, their current focus is on elevating the employee experience to assist customers in engaging and retaining their people.
The integration of PhoenixHRIS is also tracking very well, with its acquisition significantly enhancing our recruitment and onboarding capability and providing a particularly strong upsell opportunity. In this segment, we win on trust and compliance, ability to replace legacy disparate systems with a single platform and fully connected data. Finally, it's worth noting that upsell to the all-in-one remains a significant opportunity in this segment with average revenue per customer three times higher than payroll only. On to slide 23. To illustrate just one example of the targeted industry vertical approach, we demonstrate here the great success we are enjoying in the hotels and accommodation sector with recent landmark wins, including Novotel, Stamford, Ibis, MGallery, The Langham and Pullman.
In addition to some of the previously mentioned benefits of the all-in-one system, hotel clients have been choosing ReadyTech for our strong employee self-service capability and to facilitate the ease of staff movements across multiple properties. In terms of Workforce Solutions segment performance on slide 24, we saw an accelerated revenue growth of 15.8% to AUD 23.5 million, which includes software revenue growth of 20.7% to AUD 15.4 million. This was driven by new customer wins on the all-in-one platform across our targeted industry verticals and significant upgrades from existing customers. Note here that we haven't made the like-for-like adjustment as PhoenixHRIS, which was acquired late in the financial year, made a modest contribution of AUD 0.3 million.
Average segment revenue per new customer was AUD 46,200, up from AUD 39,400 in FY 2021, driven by growth in new software customer revenue of 85% to AUD 59,200. Segment EBITDA returned to growth, though margins were lower year-on-year, reflecting continued investment in both R&D and sales and marketing, and also customer onboarding to meet increased and forecasted demand. Now moving to our Education and Work Pathways vertical on slide 26. ReadyTech operates in the massive global EdTech market, which is forecast to roughly double to AUD 404 billion by 2025. Key drivers of the market and needs for technology include the shift to lifelong learning, the trend towards micro-learning and micro-credentials, online learning in remote and hybrid environments, and student expectations for a modernized and digital experience.
Building on our interoperable and cloud-based product suite, we are expanding our open ecosystem with innovative EdTech community partners to drive new value to customers, increase the stickiness of our platform, as well as to generate new revenue share opportunities. Investors would be no doubt aware of our existing partnership with aNewSpring for the Learning Management System or LMS. Following that success, we have now added Octopus BI for business intelligence, Pendula for student communications, and Learning Vault for digital badging. Touching briefly on slide 27, in EdTech, ReadyTech is known for its Student Management System, which covers the full student life cycle from student acquisition through to graduation, placement, and alumni.
We continue to win customers due to our modern cloud architecture, high configurability for rapid deployment, local expertise, superior student experience, and increasingly our open ecosystem model, as I've just mentioned, which we are now expanding and is resonating very well in the market. To that end, the LMS upgrade has performed strongly, and upon adoption of LMS, we continue to see increases in annual customer revenue of more than two times. Turning to slide 28, with a growing list of reference clients, we are experiencing strong new business at the enterprise end of the market. Key wins during the year included enterprise training company, the Engineering Institute of Technology, Australia's largest employment services provider, MAX Solutions, and the New South Wales State Training Authority, Training Services New South Wales. Education and Work Pathways segment results are shown on slide 29.
Revenue growth of 17.3% to AUD 31 million on a like-for-like basis, driven by substantial new business and upsell of extensions such as LMS. Total revenue growth was 24.5%, with Avaxa contributing AUD 1.7 million in revenue for the year. Demonstrating the enterprise and high-value customer growth, average revenue per new customer of AUD 45,800 was up from AUD 38,800 in FY 2021. We have a strong pipeline of high-value qualified leads in Education and Work Pathways underpinning expectations for continued growth. Now, moving to long-term outlook on slide 30. We remain well positioned for long-term growth, and today we increase our FY 2026 organic revenue target to over AUD 160 million to incorporate the expected contribution of IT Vision. We also have a positive outlook for the year ahead on slide 31.
Before the contribution of IT Vision for FY 2023, ReadyTech expects organic revenue growth in the mid-teens, an AUD 2 million incremental revenue contribution from FY 2022 acquisitions, and EBITDA margin in the range of 35%-36%, excluding the impact of LTIP. The eleven-month contribution of IT Vision in FY 2023 is projected to be AUD 12.6 million at an EBITDA margin of 22%-24%. I'll close now with the key takeouts on slide 32. We have a robust and growing pipeline. We are expanding our channel partner strategy to fortify and scale our customer acquisition capability. Our product and market fit strategy continues to focus on enterprise customers. We continue to invest in talent to underpin future growth, and we have maintained our successful and disciplined track record of M&A.
Lastly, we have a positive outlook for the long term with an updated target for the next four years. Thank you for your time once again, and I'll now open the call for any questions. Thank you.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you are on a speakerphone, please pick up your handset to ask your question. Your first question comes from Chris Goller with Goldman Sachs. Please go ahead.
Hey, Marc. Hey, Nimesh. Thanks for taking my questions.
Just maybe firstly on the BKI rollout, just interested to get an update on that and, you know, your traction in some larger TAFEs. I mean, is any of your high conviction pipeline in some of those TAFEs that you're looking to target in coming years?
Yeah. Thanks very much for the question, Chris. Yeah, very, very pleased with the ongoing rollout at BKI. The project has been rolled out in stages, and we're certainly coming to the completion of that project. We have a very strong advocate in TAFE. I'm sure you know that subscription revenue for that project commenced some time ago. Of course, with the addition of Avaxa during the year, as we said, we now have three of the largest metropolitan TAFEs in Victoria. I think our position in that market has been significantly fortified.
I think it's fair to say that we are confident that TAFEs are getting procurement ready, and some of the legacy platforms out there really mean that they are being pushed to market.
Maybe just again, just on the high conviction pipeline of, you know, greater than AUD 25 million, I mean, do you mind just maybe quantifying that, split across your segments? You know, how should we think about that, you know, converting over the next, you know, 12-24 months or so?
Yeah. Thanks, Chris. First of all, worth noting on the AUD 25 million pipeline, it only includes new clients, not any of the upgrade opportunities. Also excluded from that pipeline is any of the IT Vision pipeline. The split, rough split, on the pipeline there is roughly 45% in Education and Work Pathways, 35% in Government and Justice, and the remaining 20% is in Workforce Solutions. Really what we have in there is what we consider the high conviction opportunities. What we also have in there is the growth pipeline opportunity and only taking the first year of annual subscription as well as implementation fees, not the entire contract.
Look, I think that we've seen on some, particularly on some significant enterprise opportunities, conviction strengthen over the half. Yes, we're very well placed to continue to convert. Look, I think in the last year and the year before, we've been converting around 60%-65% of our high conviction pipeline. You know, we expect a similar conversion rate into the year ahead.
Yeah. Great. Maybe just one more question from me just on the margin outlook. You know, FY 2023 guidance of 35%-36% excluding LTIP, you know, that looks like, you know, at the midpoint, maybe 100 basis points lower than what you achieved in FY 2022. I guess two parts to the question. Firstly, I mean, what's sort of driving, I guess that, you know, sequential, you know, margin decline year on year in the core business? And then secondly, how should we think about the margin outlook heading out to FY 2026 as you look to hit that AUD 160 million target?
Good day. Hi, Chris. Look, the first point on the margin of 100 basis points, there's two parts to this. The full year impact of those lower margin acquisitions we did in FY22. That has about a 0.4% impact in FY23, and we expect those margins to creep up in the longer term. The cost of doing business is around that 0.5%, Marc, and that includes, you know, the salary increases. There's also things like superannuation increase, statutory elements like that. We are very pleased. Marc and I are very pleased that we maintained that cost of doing business within quarter limits, having grown nearly 500 staff in the organization.
To your question about the longer term outlook, look, we are quite confident that in the AUD 160 million revenue target mark, that will creep up to that late 30% EBITDA margin excluding LTIP. We are fundamentally investing at the moment on our enterprise strategy. You know, Marc's mentioned about those 17 goals in R&D, 17 goals in onboarding, increasing go-to-market. This is the time to invest in the enterprise strategy across all of the segments. It's not only the TAFE segment that you mentioned earlier, it's across all. We've got the run rate business on the SMEs, plus we've got opportunities on all too, all those three segments and investing appropriately on the segments. We see the margins creeping up in the longer term.
Excellent. Thanks, Marc. Thanks, Nimesh. That's all from me.
Thank you, Chris.
Thank you. Our next question comes from Mitchell Sonogan, Macquarie. Please go ahead.
Good morning, Marc and Nimesh. Thanks for taking my questions, and congratulations on a good result. Just following on from the FY 2023 guidance for organic growth again in the mid-teens, should we expect any differences across the segments? Can you maybe just touch on how the momentum, what you're seeing out there across the segments? Just listening to the high conviction pipeline is 45% in the Education and 35 Government Justice. Is it pretty fair to expect those ones should be outperforming the Workforce Solutions segment over the next 12 months? Thanks.
Yeah. Thanks for the great question, Mitch. I think first of all, I would say that, look, we have all these three segments set to grow around that same rate, which is mid-teens. I think your observation is correct. With some of the very large enterprise opportunities, particularly in the Education and Work Pathway, of course, you know those types of opportunities that we've seen with the Ministry of Justice, we probably do have that opportunity in those two segments to outperform.
However, the momentum that we're seeing in Workforce Solutions, the accelerated growth rate there, the I think the product market fit that we found and this, you know, this very, very pleasing strategy to target certain verticals, you know, we're also seeing an accelerated growth in Workforce Solutions, and I think that has a very, very positive future and good year ahead as well.
Mitch, if I may add on the Workforce Solutions. You know, for the, you know, growing at mid-teens, this is the first time in our life on a like basis of growing at mid-teens organically. More importantly, the software part is growing at 20%. We've been talking about the growth in software. It's worth remembering that a lot of these pipeline opportunities in Workforce within the six months, they come and are executed within the six months. These are not long gestation periods that you may have in TAFE or in other in the council. You know, as Marc said, we're very happy with Workforce Solutions and the growth path, and worked very, very hard. The team has done indeed.
Yeah, very clear. Thank you. Maybe just a couple jumping on to the enterprise end. Maybe starting on the government side of things. Can you maybe just talk to the engagement that you're getting from customers across IT Vision? What discussions you've been having, and do you expect most of them to transition to the Open Office ERP? Can you maybe just remind us what the average ARPU is or the differential between those two if you do get those customers converting across?
Yes. Great. I'll maybe pass to Nimesh very shortly on some of the metrics and those ARPU numbers, Mitch. I think firstly, what we're finding in the IT Vision customer base is a very I think satisfied customer base, very loyal customer base. Obviously very sticky as well due to the nature of the technology. I think IT Vision has done a very good job of engaging this customer set around, particularly around W.A. and S.A. as a real true community of customers. That of course has very significant network and referral effects. We think we're coming from a very good base. Yes, the opportunity is to shift these customers towards a cloud-based offering and of course towards subscription.
Part of that is through a product optimization strategy with leveraging some of the very strong Open Office technology. Maybe Nimesh, you want to talk about some of the numbers there.
Yeah. Mitch, you know, the average ARPU at 95 to reach it. There's 190 clients that are important, it's about AUD 10.5 million. The average ARPU, you know, comes around the AUD 65,000 on the on-prem. As we migrate to your point, the upside is fantastic. You know, we've done some work on this. Obviously we have the in-house knowledge with Open Office being on a cloud product, and we think around two to three times upside every time we move one of those 190 clients to a cloud platform. In terms of, you know, how many we expect, you know, we going to be pragmatic. We've got a lot of knowledge in this, transitioning to cloud.
At this stage, we think in the near term we'll target about 30%-40%. Obviously, we will probably like to do more, but maybe for 40% in the next three years. Eventually we expect 100,000.
Great. Thanks, Nimesh and Marc. Just a final one, maybe just jumping over to education, but more so from bigger universities as opposed to TAFE. Can you maybe just talk through what you're seeing in that pipeline there? Are there any tenders coming up in FY 2023? And can you touch on if you did bid on any during FY 2022? If there's anything else you need to do there within the business to continue to win those contracts? Thanks.
Yeah. I think over the last 12 months through the success at BKI, the addition of the Avaxa clients, as well as the opportunity that we see at TAFE that we already mentioned and the migration to cloud and I think an elevated product stack, we're very focused on TAFE right now. I think there's really good tailwinds for TAFE as well in terms of the funding with the Labor Government. You know, right now, highly focused on TAFE. I think really what we're seeing is we have a very much a TAFE-ready product. The product market fit is just so strong. Highly focused there, Mitch, as opposed to the university side.
Yeah, makes sense. That's all from me, guys. Thank you.
Thanks, mate. Thanks, Mitch.
Thank you. Our next question comes from the line of Cameron Halkett with Wilsons Advisory. Please go ahead.
Thanks, operator. Morning, gents. Just a couple of questions around hiring. A number of roles added in the period and there's a number of listings on the website at the moment as well, primarily for Workforce Solutions. I see implementation as a focus. Just wondering how you're based with staffing to manage the existing deal flow and any implications as well around future hires in this space as a reference to future pipeline conversion.
Yeah. Hi, Cam. Look, as Marc mentioned in the presentation, we hired 42 brand new roles in FY 2022. The brand new roles in FY 2023, we're looking at this current level of around the mid-20 mark. To your point, in terms of hiring, where we need the most, and it's a sign of growth even onboarding, and things like Workforce Solutions where the demand is so strong and particularly in this vertical strategy, industry vertical strategy we're working through. We have an active sort of a talent management pipeline. You know, our people and culture team is very busy getting there. We are seeing talent coming more into market, Cam, the last three months.
Within that sort of reasonable affordability criteria, we want to make sure we get the right candidate. Along those lines. At this stage of the cycle, we are quite confident of getting that fulfillment of those extra roles.
Thanks, Nimesh. I guess just to follow up then, with IT Vision coming into the group from July, that's obviously a number of you know, government wins that have come through inorganically, and you've just touched on Workforce Solutions requirements this year as well. I suppose you know, what about education in terms of you know, staffing requirements? I suppose, if you can, just a general comment on hiring you know, expectations beyond FY 2023, given Workforce Solutions is you know, in its investment phase. Thanks.
Well, I think that first of all, Cam, as we've done the last few years, you know, we'll continue to, and education is no exception, focus on roles in the R&D team, continuing that investment in product. Obviously we need to keep adding those roles as we continue to sort of maintain and scale growth. Those are focused very much on the enterprise end of the market. As we have the last few years as well, you know, we have continued to add roles in sales and marketing, and we've done that in a very disciplined way, and done that in an incremental way, making sure we get really good payback for each of those additional roles.
I think particularly with some of the businesses that have joined ReadyTech that have lower marketing spend, you know, we've certainly found that has been highly beneficial to help them also accelerate growth. I think continue to see investment in new roles in FY 2023 across the board and Education Work Pathways, no exception. Nimesh made the point about the talent market. I think we certainly saw in Q4 that sort of more aggressive salary inflation. You know, we felt like that had passed.
We've also really seen, I think, you know, sort of employee retention rates trending back towards more the historical rates that we had before the more I suppose period which we considered the war for talent.
Awesome. Thanks, guys.
Thanks, Cam.
Thank you. Our next question comes from the line of Wilson Wong with Jarden. Please go ahead.
Hi, Marc and Nimesh. First question is just around the level of R&D investment. I guess with the meaningful sort of increase this year, how do you sort of see it sort of settling over, I guess, FY 2023 and then, like, going into the longer term, like on a AUD 160 million sort of revenue base? Or where do you sort of see that % of revenue being?
Hi, Wilson. If you look at it, 32.5% or 31% for the prior year, a little bit obviously is the cost of inflation in there. We again managed it really well within that 150 basis points. As Marc's mentioned, we've added 70 new roles. Going forward, we are very comfortable holding at that 30% of revenue mark. We will continually invest in product. You know, we want to make sure all of our flagship products have adequate investment for growth. That 30% mark is where we see to land in the longer term.
Sure. Just on that wage inflation, how are you sort of seeing that at the moment? Has that sort of moderated, or is that particularly for the new staff being hired?
Yeah. I think we certainly have a strong sense that it has started to moderate. You know, we probably felt that around three or four months ago. I think it was at that time, you know, in the technology industry particularly, you know, where the sentiment moved away from growth at all costs. You know, that's brought a lot of talent to the market. We feel that sort of moderated around you know, the salary levels to what we were seeing before that, so a more intense period.
Sure. Next question just around cash conversion. It was down a bit sort of this year. What do you sort of see the drivers for that?
Yeah. Look, I think 89% underlying EBITDA to cash flow conversion, we've always said about 90%, Wilson. Last year it was an exceptional year. We had our July and August billing come into June, some of them. This time, you know, it's been down to the normalized level of 90%. We are very comfortable at that. As I mentioned earlier, the surplus cash this organization built, so you know, we used that for M&A. We spent nearly AUD 9 million on acquisitions. The 90% mark is, we on a pro forma basis, that's what we're comfortable at.
Sure. That makes sense. Just on the price rises, I mean previously you sort of alluded to, are you sort of seeing any sort of churn off the back of this? And how do you sort of see, I guess, the pricing strategy going into the new year?
Yeah. Look, we obviously have had a really good close look at pricing strategy for the year ahead, particularly with some of the salary inflation that we'd experienced and other costs, like insurance, going up that we'd experienced. You know, again, on a blended average, you know, we are applying price increases of around 5%-6% across the different product sets. They have a slightly different profile depending on the customer sets and so forth. Look what we've seen certainly in the first month or two is you know no material impact at all in terms of customer retention. You know, I think overall those increases are being well received.
Yeah, that's the plan for the year ahead. Obviously, they also fade through the year depending on the cycle of that renewal across those customers.
Sure. My last question is just on, I guess, the cross-sell into the IT Vision customer base. Could you just provide an update on that and sort of the level of traction there?
Yeah, I think first of all, I would say that the very key opportunity, and Nimesh talked about some of the metrics, is the shift and the transition to full cloud and also subscription. Also what we see with the IT Vision customer base is a wider product set from both the Open Office business in terms of modules such as, you know, by way of example, environmental health, very strong module offered by Open Office, which is not currently in the IT Vision customer set. Of course, we also have the Open Windows contracts and procurement management capability, which is an additional cross-sell opportunity into that customer base.
I think if you couple that transition to cloud subscription with this wider product set, you know, we see very strong growth in, I guess, share of wallet and the increase in ARPU in coming years.
Sure. Thanks, guys.
Thanks.
Thank you.
Thank you.
Thank you. Our next question comes from Mason Willoughby-Thomas with ICE Investors. Please go ahead.
Oh, good day, Nimesh. Good day, Marc. How are you?
Very well.
That's good. Can I just quickly elaborate a little further on the capitalized investments in software? Just can you give a little more color on what they were, why they were quite a bit elevated relative to sort of historic levels and sort of how you see that coming off over the sort of, say, FY 2023 and beyond?
Yeah, Mason, a good question. Look, I think we've always said our answer to, you know, 14% of revenue, you know, became within that 14% revenue. Our absolute term is elevated because in FY22, you had 12 months of Open Office, where in FY23 you only have three months of Open Office. There is a like-to-like adjustment there. The other kind of point to your question, where they do it on a product, fundamentally across all our eight to 10 flagship products, Mason, and we're continue to evolve the products, and in particular the enterprise level of products.
For example, the TAFEs take ReadyTech products not only from BI, but all the other TAFEs that's in the justice space, the same level in the council space, and we're getting ready for the larger metropolitan types of product development. We've got, of our 520 staff, we've got around 260 in R&D and a lot are on the development side. Look at BAU, which is the other we expand.
Right. Okay. I mean it is just the level of capitalization is obviously very elevated. It was sort of 11-ish% historically. It's now 16-ish% this year. Just to confirm though, is that expected to continue or are you gonna sort of rationalize the R&D function within the business and bring that back down?
Yeah, look, absolute numbers is about 14% of revenue, but over the longer term we're quite happy to maintain that 14%.
Okay.
You know, that takes into account, as I said earlier, cost of doing business as well, on some of these roles. With that 14%, we're very comfortable.
Sure. Okay, no worries. Just quickly too on the working capital, obviously you have a pretty big headwind this year. How do you sort of envisage that unwinding over the next 12 months? Or will it unwind?
No, I think as I said on the conference call about that 90% of underlying EBITDA cash flow, again, we're very comfortable with that. You know, majority of the clients pay 12 months in advance. We obviously see next year's billing coming through in quarter four so that, you know, at this level, that's where our comfort level is.
Okay, good. Okay, thanks, Nimesh. Thanks, Marc.
Thanks. Thanks, Mason.
Thank you. There are no further questions at this time. I now hand back to Mr. Washburn for closing remarks.
Yeah. Thanks again everyone for joining. I think I'd just like to finish by saying that we feel that the business has very strong momentum going into FY 2023, and I personally have never been as excited about the future growth opportunity. We really look forward to seeing many of you out on the upcoming investor roadshow. Thanks for your time today. Have a great day.
Thank you. Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.